eCommerce: Formulation of Strategy

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by Robert Plant, Robert T. Plant

Editorial Reviews

Book Info(Financial Times Prentice Hall) Helps executives understand their e-commerce objectives and define metrics and processes that help every team member stay on track. Drawing on research at more than 40 top e-commerce organizations, this text helps optimize brand, technology, service, market, and development. Softcover. DLC: Electronic commerce--Case studies.

From the Inside Flap Preface

Even the Super Bowl, the most sacred and most watched sporting event in the United States had succumbed to the Internet and its influence. Victoria's Secret, the lingerie company, was the first to take the initiative with a 15-second slot promoting a live supermodel fashion show on the Internetan event probably more memorable than the game itself. By Super Bowl XXXIV only two years later in January 2000, with an estimated 130 million viewers the excitement and conversation was centered as much around the "dot-com" advertisements airing during the game as the game itself, each company paying out a record $2.2 million for each 30-second slot.

The message is clear: the Internet is here to stay. But beyond the start-up legends, the intermediaries, infomediaries, and service providers, the Internet is challenging established corporations' relationships with customers. The question they face is: "What will be the impact of the Internet on our business, our competitive strategy, and our information systems strategy?"

In researching this book, I interviewed senior executives at more than 40 major corporations in the United States and Europe. These in-depth interviews revealed diverse approaches to how this question is being approached.

Most companies have recognized that they need to create and execute an e-commerce strategy; however, as they look for strategy models to follow, they realize that there are none available, especially for manufacturers in traditional industries. To blindly follow the strategy of the new Internet stars such as Amazon is impossible.

Some companies still feel that they can largely ignore the Internet and that they can offer a token Website with a basic product offering. To executives at these companies, my response is "How quickly could you respond if your strongest competitor came out with a powerful e-commerce strategy tomorrow?"

Other companies, however, have recognized some of the drivers in e-commerce and have adopted one of them to the exclusion of the others-for example, positioning themselves to have a low-cost Internet customer service position. However, this lack of balance between service, branding, technology, and marketing can be extremely detrimental.

Clearly, some organizations are winning in the battle for the Internet marketspace and are creating adaptive, intelligent solutions that will keep them ahead of the competition, build successful barriers to entry against insurgents, and allow them to create new empires as the slow giants of the old economy fight to change course and pick up steam.

Thus, in the face of a barrage of new rules for the information economy, business is finding that the boundaries of strategic thinking, and of competition, have vastly expanded. The challenge is to keep up with the rapid growth in converging technologies and to translate the potential of these technologies into business vision and dynamic competitive strategy.

So, what exactly is corporate strategy in the face of e-commerce? We can define corporate strategy as the formulation of a set of directives that, when effectively executed, fulfill the competitive vision set by executive management. In light of that, my consistent finding has been that, to be effective, an e-commerce strategy has to be integrated with the strategic vision of the company as a whole. As an executive from American Express put it, "The Net has to integrate into your core business." However, the approach to the creation of an effective e-commerce strategy is not always clear. True, many classic examples now exist and are very visibleAmazon, AOL, eBaybut these are new organizations, born on the Web. What if you're an industrial manufacturer of cyclical products, how do you proceed? What if you are a supplier of information-based services and wish to develop an Internet strategy, again, how do you proceed? Executives can study the successes of the Amazons of the world, but does an Amazon-type strategy translate to other industries or organizations? Probably not. A sample of one type of Internet strategy, even if derived from the best of pure dot-com companies, has severe limitations.

The aim of this book therefore is twofold:

To enable CEOs, senior executives, and managers to understand the competitive ramifications of e-commerce within their arenas of corporate competition

Through the methodologies presented, to enable executives to take effective action in developing a strong, unique, and effective strategy for their own organizationsCompanies and Case Studies

The methodologies presented in this book are based on a series of in-depth interviews and studies with executives and managers at 33 North American and European companies and, through use of public data and case studies, information for 10 additional organizations (see the table). This approach allowed us to get inside the thinking and philosophy of these global marketplace leaders, 16 of which were in their industries' top 10 as defined by Fortune. The in-depth interviews, examination of case situations, and discussions with leading practitioners have been distilled into a comprehensive set of frameworks. From these, you will get a clear picture of the dynamics involved in the creation of an Internet strategy and its deployment.

Research Organizations

Company

Industry Categories

Interview Case Studies

1 IBM Comps.Hard

2 Citigroup Banks-M.C.

3 UPS Transptn. Services

4 American Express Fin'l Div

5 Nortel Comm. Equip

6 Entergy Elec.Cos

7 Sun Microsystems Comps.Hard

8 UTC (Pratt & Whitney) Transport. Equip.

9 Office Depot Retail-Spec

10 USMedicalSystems Medical

11 Motorola Telecommunications

12 FPL Elec.Cos

13 Ryder Truckers

14 Dow Jones Publishing

15 Royal Caribbean Lodging-Hotels

16 Lennar Homebuilding

17 ABIG Insurance-M Line

18 W.R. Grace Chem.-Spec

19 CSR Rinker Nonmetallic Minerals

20 Chemical Biotec

21 Millipore Manf. Specialized

22 Sony Entertainment

23 Priceline Online Retail

Private Companies or Companies That Are Part of a Conglomerate

24 Rover Group Automobiles

25 BMW Automobiles

26 Alamo Svcs.Comm

27 Burger King Restaurants

28 Holberg (Ameriserve) Logistics

29 VisualCom Internet Services

30 FAR&WIDE Travel

31 manage.MD Healthcare Services

32 LightPort Finance

CompaniesPublic Data and Case Study Information Sources

33 Swiss RE Insurance Carriers

34 Charles Schwab Finance

35 Schlumberger Oil

36 Lockheed Defense

37 Edmunds Automotive & Publishing

38 Internet Securities Inc Finance

39 Ford Automotive

40 America Online Internet Service Provider

41 Virtual Vineyards Wine

42 Co-Op BookShop Australia Publishing & Distribution

43 GM Automotive

The book is organized in the following fashion.Chapter 1: Formulating an Internet Strategy in a Networked World

The chapter discusses the dynamics of the e-commerce marketspace and the three market positions that organizations and their executives find themselves in-traditional established organizations, new online organizations, and hybrid organizations.

New organizations: born on the Net

Existing organizations: move to the Net

E-consortia: swarm to the Net

The ultimate success of the strategy created and adopted by an organization depends heavily upon early identification of the specific issues and options available in each of these sectors when applied to the individual circumstances of the organization.Chapter 2: Creating an Integrated E-commerce Strategy

In this chapter we discuss the seven dimensions of an e-commerce strategy: The four positional characteristicsbrand, technology, service, and marketand the three bonding factorsleadership, infrastructure, and organizational learning. Determination of the interrelationships among these factors is key to the creation of a strong yet adaptable e-commerce strategy.Chapter 3: Ownership Issues

The creation of a successful e-commerce strategy is more than just the development of a conceptual product and plan. This chapter considers two critical factors internal to the organizationthe organizational structure and the content owners.

Success in the online marketspace requires flexibility and adaptivity on the part of the organization. To facilitate this, new e-centric organizational and management structures need to be adopted. These are structures that have their roots in the world of mass customization where the concept of the networked cross-functional management group has been previously successfully deployed. This chapter considers how these structures can be utilized in the online organization and how content owners within the organization play a valuable role in that structure.

The chapter thus considers the key organizational issues that need to be effectively managed to successfully compete in the Internet marketspace, including:

Technology does not work in a vacuum to make an organization world class. In this chapter technology issues are considered in relation to other key driverscorporate positioning and structure. The chapter describes how these factors, when carefully molded together, combine to create the dynamism found in the world's great companies.

We consider:

The role of the executive champion

The McKinsey Seven S Framework

Strategy

Skills

Staff

Style

Systems

Structure

Shared values

Enterprise resource planning (ERP)

Data warehousing

Knowledge managementChapter 5: Developing a Market Focus

This chapter considers the issues facing industry types and develops the issues pertaining to the four major segments through case studies of leading organizations in e-commerce strategy and deployment. The chapter also considers the role of partnering in developing a successful online market position and outlines the strengths associated with the e-consortia e-business model.

We look at:

Manufacturing: CA-Chemical

Mixed service and goods: Sony

Mixed service and goods (B2B): USMedicalSystems

Service organization: Charles SchwabChapter 6: Service Leadership Through the Internet Service Value Chain

The ability to create a meaningful customer relationship at all points of contact is central to doing business on the Internet. However the first generation of models that organizations followed were too simplistic both in their view of the customers' behavior and the metrics that they used. This chapter considers the interaction of customer relationship management through three drivers-content, format, and access-and discusses e-commerce metrics from a perspective that combines research from the area of knowledge-based systems verification and validation with that of market research analysis. At the end of the day, corporate strategists must know that what they are measuring is both valid and useful!

The power of branding on the Internet cannot be underplayed; the strength of the new online organizations has created significant brand equity very quickly. For traditional organizations moving to the Net, their challenge is to leverage existing brands effectively and move forward in their new chosen marketspaces. This chapter discusses the four major positions that can be adopted:

Brand reinforcement

Brand creation

Brand reposition

Brand followerChapter 8: Formulating an Internet Rollout Strategy

This chapter discusses the issues surrounding developmental choices available to executives-whether to develop the systems internally, externally, or some combination. The issues surrounding development and Web hosting are also explained and discussed through the Charles Schwab case study. The case illustrates at an executive level the major technical issues chief information officers and technologists face regarding server configuration, network topology, and application designs.

This chapter develops a set of frameworks that executives and managers can work from in order to gain an understanding of the forces in strategy formulation pertaining to their own individual circumstances. The frameworks contain over 50 questions covering the seven dimensions of strategy formulation. The aim of the chapter is to help executives answer two fundamental questions: What are the strengths and weaknesses of my strategy or proposed strategy? What will I get out of this technology investment?

We consider:

The creation of a metrics program

The Internet effectiveness scorecard

The e-value map: an ownership/manager level analysisChapter 10: Waves of the Future

This chapter discusses the six major areas in which change will emanate as the environment of e-commerce goes forward in time. The ability to stay ahead in all of these areas is vital to e-commerce strategies, and the chapter highlights critical issues in each: patents, e-consortia, wireless technologies, brand equity valuation models, the threat from the "old economy" industrial giants as they recreate themselves, jurisdiction, copyright, pricing models, the home services station, global markets, market hubs, market segmentation, emerging markets, Latin America, China, the information hub, the visible and invisible hand, the White House, cyber crime, the Eighth Principle.

The areas are:

Technology changes

Branding changes

Market changes

Service changes

Government and political changes

External relationship changesChapter 11: Views from the Edge

This chapter contains five interviews from executives on the leading edge of strategy and vision. The executives were chosen for their fresh views and their insight into particular industry segments. They reveal issues that are both far reaching yet pragmatic as they run their operations in a day-to-day environment. These interviews may help real-world managers and executives cope with their mainstream environments and organizations more effectively. Not all companies are Fortune 100 companies or situated in Silicon Valley as portrayed in most other interviews and texts. The interviews include two dot-com start-ups, a software company transitioning to the Net, a multinational telecommunications company, and a power utility.

The models are created, based on the research collected for this book, to maximize the strategy potential of all organizations that adopt and adapt them for their own individual circumstances. The book's intent is to help executives in all stages of growth and positioning and for executives globally. All organizations have the opportunity to transform themselves through the Internet and the potential it offers.